EXPANDING THE PIE: Council includes broader representation from state’s craft beverage sectors

The Michigan Craft Beverage Council will be charged with funding agricultural research — such as on hop production — that would benefit Michigan’s wineries, breweries, cideries and distilleries. Michigan Hop Alliance’s farm in Omena is shown here.COURTESY PHOTO

Council includes broader representation from state’s craft beverage sectors

An update to Michigan law is bringing a more equitable approach to how license fees from craft beverage producers are spent.

On Oct. 1, the Michigan Craft Beverage Council will replace the Grape and Wine Industry Council and expand its membership to also include breweries, cideries and distilleries to reflect the breadth of the state’s craft beverage industry.

The current Grape and Wine Industry Council — which all Michigan-based alcoholic beverage manufacturers support via their annual license fees — focused its efforts on the promotion of the Michigan wine industry and wine grape research.

Under the new law, the revised council will feature representatives from each of the categories of craft beverage producers, as well as from a retailer that sells Michigan alcoholic beverages and a restaurant that serves in-state beer, wine or spirits. The Craft Beverage Council also would be required to spend at least half of its budget — after deducting administration fees — on grants to support agricultural research benefiting the producers.

Brian Tennis, co-founder of Michigan Hop Alliance, described the change as “long overdue.”

He’d like to see the research go to a public university to help identify new hop varieties that would grow well in Michigan. That would allow the state’s growers to differentiate from what’s being grown in the Pacific Northwest, where large growers have locked up in-demand proprietary varieties unavailable to Michigan farmers.

“There’s a lot of small farms in Michigan that are going out of business because they can’t plant any of the really new and sexy proprietary hops,” Tennis said. “We can’t even buy the rights to grow them.”

In possibly developing varieties specific to Michigan, “we’re just trying to level the playing field a little bit,” he said. “We really need our own varieties.”

PUSH FOR EFFICIENCY

Despite the promise for more research, the 10-member Craft Beverage Council will be launching with a budget about $170,000 less than the Grape and Wine Industry Council’s average budget, according to a bipartisan Senate Fiscal Agency analysis of the bill that changed the board’s makeup.

The Michigan Department of Agriculture and Rural Development — which administers the council — expects it to have an annual budget of about $560,000 in most years, according to Karel Bush, executive director of the current Michigan Grape and Wine Industry Council. The budget will swell by about $200,000 every third year based on renewals of various salesperson licenses.

The decreased budget stems from a law in 2016 that diverted wholesaler license fees from the council to support a new enforcement fund. Until then, the council’s annual budget ranged from $700,000 to $800,000.

The new law also caps the new group’s expenditures on administrative costs to the Department of Agriculture at $80,000 annually, a fraction of what the current Grape and Wine Industry Council spends.

From the 2015 through 2017 fiscal years, administrative costs averaged more than $422,000, or between 50 percent and 62 percent of the council’s overall budget, according to an analysis by MiBiz. During the same period, funding for research and grower education varied from about 15 percent to 19 percent of the budget.

Paul Vander Heide, owner of Vander Mill LLC, a Grand Rapids-based cidermaker, said besides not having a voice at the table under the existing Grape and Wine Industry Council — even though his business is licensed as a winery — he took issue with how much of its budget was “swallowed by administration and bureaucracy.”

“Because it has such a small budget, it’s hard for the council to be terribly effective. Now we’re adding more industries, but there also will be more pieces of the pie,” he said.

Vander Heide, the current president of the Michigan Cider Association, said the cider industry fought hard to be included specifically in the new law’s language outlining the council’s governing board.

“We want to be a part of it, to get our fair share of the resources to benefit our industry,” he said. “But we have concerns over its ability to be effective.”

A BOOST TO AG?

Like its predecessor, the new Craft Beverage Council will be able to seek federal Specialty Crop Block Grants to support ongoing research into fruits used in wine and cider, as well as hops and barley. The council’s research funding could also go to develop and administer financial aid programs for farmers to support growing the Michigan agriculture base serving the industries.

Long Road Distillers LLC co-founder Jon O’Connor said the research and support for growers is needed to help boost the availability of Michigan-grown ingredients. He cited distillers’ and brewers’ difficulty in sourcing local gains such as barley and rye that meet their quality standards as one challenge the new council could address.

“If we want to continue to be successful using Michigan agriculture, any help we can get is important,” O’Connor said. “We need more research into what types (of barley and rye) grow best, where they grow best and educate growers that this is a lucrative crop for them to plant in their fields. Corn is a commodity — they have a guaranteed end user regardless of prices. With barley and rye, there’s not always been a guaranteed end user, so there’s been a hesitancy on the part of farmers to grow those crops.”

SOOTHING TENSIONS

For years, many of the state’s non-winery producers bemoaned that the fees they paid as brewers, distillers and cidermakers went to fund research and promotion that had no benefit to their industries. Many producers called it a classic example of taxation without representation.

MiBiz was the first to report on the rift in 2015, after Bell’s Brewery Inc. founder Larry Bell brought up the issue in a roundtable discussion with executives from the craft beverage industry.

“It’s always been a bit of a rub for me,” Bell told MiBiz at the time, noting he’d been pushing for reform for years without any traction.

In announcing Gov. Rick Snyder’s signing of the bills that created the new Craft Beverage Council, MDARD Director Gordon Wenk called the changes “a smart move.”

“When the Michigan Grape and Wine Industry Council was established 30 years ago, Michigan had 14 wineries. We now have 145. And that industry alone contributes $5.4 billion in economic impact to our state, including $253 million in tourism spending,” Wenk said in a statement. “Now we’re watching Michigan become one of the nation’s most prolific and innovative producers of craft beers, hard ciders, and spirits. As a state, we must evolve with the industry — support them, promote them, and ensure they are represented in the decision-making process.”

Michigan Brewers Guild President Scott Graham called the bills’ passage one of the organization’s top legislative priorities. The guild supported reforming the council’s membership to ensure hops and barley research could benefit from brewers’ license fees.

“We’ll see exactly what that means for promotion of local hops and barley and the beer industry,” Graham told MiBiz during a recent interview, noting that he hoped all the members could find common ground. “I really don’t know where that’s going to go, but it’s certainly not my intent that the wineries will get pushed aside. I’m hoping that the whole community can get supported like they have been and that they’ll continue to benefit from it, too. It needs to work for everybody.”